20 September 2000

Nigerian Breweries: Building a Future for Investors

Lagos — The major company news that circulated the nation's capital market last week was the Nigerian Breweries Plc's venture into the on-line distributive business.

The quoted firm was reported to have concluded arrangements with a Lagos-based Information Technology (IT) company, Solix Technologies, and six banks to develop and implement an e-commerce program that will facilitate the distribution of its products via the Internet.

The gains of this venture are expected to manifest in the immediate value which the company will get for its goods, as long waits to receive payments are phased out through the new scheme.

The ability of Nigerian Breweries Plc to push ahead of others in the Breweries sub- sector of the Nigerian Stock Exchange (NSE) Daily Official List is as a result of the dynamic growth in its innovativeness, research and development and management training.

The stock is the most sought after in the sub-sector even as its shares are currently selling at N22.60 per equity. This is lower than Guinness Nigeria Plc's share which sells at N36.00 per unit. The company remains the most capitalised quoted firm within the sub- sector with its authorised share capital, issued and fully paid, standing at 1.525 ordinary shares of 50 kobo each. Guinness Nigeria Plc has 767,964,249 issued shares held by shareholders in which Guinness Overseas Limited has 320,097,662 ordinary shares representing 45.21 per cent, while Atalantaf Limited has 55,014,703 shares, reflecting 7.77 per cent.

Recently, the company released to the Nigerian Stock Exchange (NSE), an unaudited financial results for the first quarter ended March 31, 2000, which show a turnover of N3.5 billion as against N2.8 billion in the comparable period of 1999. Profit after tax stood at N911.8 million, compared with N663.5 million in 1999.

A comparative analysis of the sub-sector between the two major brewers -Nigerian Breweries Plc and Guinness Nigeria Plc- shows that Guinness recorded in its unaudited financial results for the first quarter ended September 30, 1999, a turnover of N3.2 billion as against N2.6 billion in 1998, while profit after tax stood at N753.7 million, compared with N589.7 million in 1998.

From the above comparative analysis of the two companies' first quarter performances, the difference is quite clear as it has revealed Nigerian Breweries Plc as having an edge over the other.

In his recent explanations as to why the company's performance has been on the bullish trend despite all the odds against the industry, Managing Director/Chief Executive Officer of Nigerian Breweries Plc, Mr. Festus B.O. Odimegwu, said that consistent, strong and innovative marketing support for all the company's brands during the year ended December, 1999, along with the very enterprise driven customer service strategies, ensured an overall company performance that overwhelmed the market, as all its brands experienced significant growth in market share relative to 1998.

Adding that "our soft drinks business out-performed the carbonated soft drinks market which itself recorded a 10 per cent growth over 1998," he assured the investing public that the firm will consolidate on its performance.

He recalled that his company added Schweppes pineapple to its Schweppes range of carbonated soft drinks in 1999 to consolidate its position in the market. He expressed satisfaction that market acceptability and growth for their brands have exceeded the expectations of the company's management.

The company's trading results for the period under review show a turnover of N12.03 billion, representing an increase of 31 per cent over the figure of N9.19 billion in 1998, while profit before tax stood at N5.26 billion as against N3.23 billion in 1998, an increase of 63 per cent.

Its profit after tax rose by the same percentage over the 1998 figure of N2.13 billion, and stood at N3.47 billion.

The company's cost of sales reduced from N2.137 billion recorded in 1998 to N1.683 billion in 1999, while there was a rise in gross profit from N7.049 billion in 1998 to N10.350 billion in 1999. Selling and distribution expenses stood at N2.071 billion in 1999, as against N1.604 billion in 1998, while administrative expenses moved from N2.441 billion in 1998 to N3.340 billion in 1999 and interest expenses and similar income appreciated from N233.009 million in 1998 to N334.855 million in 1999. The transfer to general reserve shows a rise from N899.788 million in 1998 to N1.189 billion in 1999.

The company's net cash flow from operating activities grew from N2.288 billion in 1998 to N3.480 billion in 1999, while the position of the net cash used in investing activities shows N1.736 billion in 1999 as against N569.849 million, recorded in 1998.

Although, its net cash used in financing activities rose from N836.735 million in 1998 to N1.160 in 1999, its net increase in cash and cash equivalents carried forward dropped from N882.393 million in 1998 to N583.197 million in 1999, but cash and cash equivalents as at December 31, 1999 show N4.572 billion as against N3.989 billion in 1999.

The value of the company's stocks shows a figure of N6.402 billion compared with N4.296 billion achieved in 1998, while the figures recorded in respect of debtors stood at N1.178 billion in 1999 as against N942.663 million in 1998. For creditors, there was a growth of N8.574 billion in 1999, from N5.697 billion in 1998.

Furthermore, a five-year financial analysis of the company shows a growth in turnover from N10.768 billion in 1995 to N12.033 billion in 1999, taking the period of the harsh duty excise burden into consideration, while shareholders' funds also rose from N13.173 billion in 1995 to N16.779 billion in 1999. Fixed assets also appreciated from N11.378 billion in 1995 to N11.521 in 1999, while net current assets rose from N1.794 billion in 1995 to N5.257 billion in 1999. In all, net assets grew from N13.173 billion in 1995 to N16.779 billion in 1999. Profit before tax rose from N2.506 billion in 1995 to N5.268 billion, while profit after tax stood at N3.476 in 1999, as against N1.778 billion recorded.

Its earnings per share appreciated from 116.63 kobo in 1995 to 228.00 kobo in 1999, while dividend payout per share rose from 51 kobo in 1995 to 150 kobo in 1999.

On June 28, 1995, the company declared a scrip issue of one for one, while on June 30, it also declared two for three for its registered shareholders.

In 1999, the company paid a total of N1.9 billion to the Federal and State Governments in various forms of taxes and levies in 1999. Out of this amount, the sum of N83,688,385.52 million was education tax, while N625,687,796.07 million was value added tax.

On the future prospects of the Nigerian Breweries Plc, its Chairman, Mr. Felix O. A. Ohiwerei, was quick to explain that with intense competition from foreign brands, in view of government import liberalisation policy, the consequences of excise duty re- introduction and the spate of disturbances across the country, it is certain that year 2000 will turn out to be a very difficult year for the brewing industry, as these factors might likely pose as great threats to volume and margin.

Ohiwerei added that "on the domestic front, the future of our company is very bright. We have adopted a change process to power the journey towards our world class vision. A vision that demands the irreversible upgrading of our market standards to international levels, growing only people that make things happen, installing machines with latest technologies, using higher quality materials at all times and deploying open and team based processes."

Nigerian Breweries Plc was incorporated on November 16, 1946, under the Companies Ordinance, Cap. 38 as Nigerian Brewery Limited. On January 7, 1957, the name of the company was changed to Nigerian Breweries Limited. In 1990, when the Companies and Allied Matters Act came into force, the name of the company was further changed to Nigerian Breweries Plc.

From all indications, the company's operating efficiency, as measured by the return on sales which grew substantially, has proved that the firm's management is very proactive in its aggressive marketing strategies. All its performance indices are very positive, an encouragement to iinvestors. Its earnings yield and dividend payout are quite attractive. The stock is recommended for buy and hold for both income and growth.

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